The AMC share price finished the day higher by +19.96% on huge trading volumes. Is short-squeeze round 2 on the cards?
AMC Entertainment (AMC) was one of the biggest stories in January. Along with Gamestop (GME). In the face of a global lockdown, hedge funds had taken huge short positions in the cinema chain.
The sentiment was so negative, and the sellers so confident that they ahd borrowed almost all of the shares in circulation. This meant the number of shares left that could be sold was extremely limited.
When short sellers borrow stock, they pay an overnight fee to the owner of the shares. When the supply of shares is scarce, the fee increases. If the share price moves higher, the borrowing cost increases further.
So, the price goes up, the borrowing cost increases. The borrowing cost goes up, and the price increases.
This creates the ideal conditions for a short -squeeze.
The well-publicized squeeze that followed sent the AMC share price +950% higher, from $1.97 to $20.36 in two weeks.
The bubble eventually popped when brokers and clearing houses introduced trading limits to relieve the buying pressure.
The AMC share price tumbled from over $20.00 back to around $5.00 in 2 weeks.
Since February, the price has been in a volatile trading band between $7.50 and $15.00. On the 13th of May, the price was trading at the lower end of this band.
Over the last 10 days, the trading volumes have been steadily increasing, and yesterday, AMC was the second most active US stock. The large volume buying has seen the AMC share price finally break out of its recent range finishing the day +19.95% at $16.41.
It has subsequently been revealed that the short interest in AMC is back to its all-time highs, at over 95 million shares.
What comes next remains to be seen, but it could make for some interesting times ahead.
Has another hedge fund become complacent and over-confident? Who knows. We will see how the story develops over the next few weeks.
In a market like this, the best recommendation I can make is to grab some popcorn, sit back and enjoy the show.